September 2011 Philippine Supreme Court Decisions on Commercial Law
Payment; foreign currency. A stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.
Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.
On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.
Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. Union Bank of the Philippines vs. Spouses Rodolfo T. Tiu and Victoria N. Tiu, G.R. Nos. 173090-91. September 7, 2011.
(Hector thanks Rachel T. Uy for her assistance to Lexoterica.)
